Contracts I - Remedies - Basics

Question 1

In common law, what is the distinction between voluntary and involuntary obligations?

Answer 1

Voluntary obligations are contracts.
Involuntary obligations are either torts or quasi-contracts.

Question 2

How are contracts made?

Answer 2

By agreement of parties
They require one or more promises of the parties and a validation device

Question 3

What is a validation device?

Answer 3

A reason to enforce that promise

Question 4

How are torts being imposed?

Answer 4

Either imposed by law because of a wrongful action or omission or
sometimes imposed without regard to “fault” as a means of
spreading risk among beneficiaries of an action or event

Question 5

How are quasi-contracts being imposed?

Answer 5

Imposed by law to prevent unjust enrichment
When one has received a benefit for which one ought to pay

Question 6

What are the 5 validation devices for promises?

Answer 6

Consideration
Reliance
Material Benefit
Moral Obligation
Form

Question 7

What are the other names for reliance?

Answer 7

Section 90 liability, detrimental reliance, promissory reliance

Question 8

In brief, what are the requirements for consideration?

Answer 8

Bargained-for-exchange with
Either legal benefit for the promisor or
Legal detriment to the promisee

Question 9

What are the requirements for reliance?

Answer 9

Promise
Foreseeable detrimental reliance
Actual detrimental reliance
Enforcement necessary to avoid injustice (definite and substantial reliance is no longer contained in restatements but is contained in enforcement necessary to avoid injustice)

Question 10

According to the Restatements, what does reliance require?

Answer 10

Substantial Reliance: The reliance on the promise must be significant and have a material impact on the party’s actions or decisions. It should be more than trivial or minor reliance.

Definite Reliance: The reliance should be specific and definite, meaning that it can be clearly identified and linked to the promise. It should not be based on vague or speculative expectations.

Foreseeability: The reliance must be foreseeable by the party making the promise. In other words, the promisor should have reasonably anticipated that the promise would lead to reliance and that the other party would take action based on the promise.

Detriment: The reliance should result in a detriment or harm to the party who relied on the promise. This harm can be economic, financial, or some other tangible loss.

Question 11

What is the newest validation device?

Answer 11

Material benefit

Question 12

What requirements does the material benefit as a validation device have?

Answer 12

Receipt of an actual, material benefit (NOT legal benefit as in consideration)
Subsequent promise to pay for the benefit by the recipient

Question 13

Material benefit requires a promise after the receipt of an actual, material benefit. If there was no real promise, what should be considered?

Answer 13

A quasi contract.

Question 14

What can be said about the form as a validation device?

Answer 14

Derives from the ‘seal’
No longer accepted
All states make written promises enforceable under certain circumstances

Question 15

In which state are all written promises enforceable? What are the conditions?

Answer 15

Pennsylvania makes all written promises enforceable if the writing states
the intent to be bound (Pa. Stat. Ann. tit. 33, § 6)

Question 16

Which remedies have juries?

Answer 16

Only legal remedies. Equitable remedies have no jury.

Question 17

What does ‘relief’ mean?

Answer 17

A general term for remedies.

Question 18

What two types of reliefs exist?

Answer 18

Substantial (damages)
Specific (injunctions or orders to perform)

Question 19

Substantial relief (damages) always involves …

Answer 19

comparing a present actual situation of a party with a hypothetical situation for that party

Question 20

Explain how nominal damages and punitive damages work in contracts

Answer 20

Nominal damages available even if no actual damages are proven
Punitive damages are not available (but might be available if there is an “independent tort”)

Question 21

Are nominal damages available for torts?

Answer 21

No, they do not exist for torts.

Question 22

From the injured party’s perspective, what measures of damages are available?

Answer 22

Expectancy damages (forward looking)
Reliance damages (backward looking)

Question 23

What is the normal measure of damages among the 4?

Answer 23

Expectancy damages

Question 24

When considering expectancy damages, what is being compared?

Answer 24

The actual situation of the injured party with that party’s situation if the promise had been performed

Question 25

When considering reliance damages, what is being compared?

Answer 25

The actual situation of the injured party with that party’s situation if the transaction or even had never happened

Question 26

Are expectancy damages available if there is no promise?

Answer 26

No.

Question 27

What is the basic remedy for tort?

Answer 27

Reliance.

Question 28

From the wrongdoing party’s perspective, what measures of damages are available?

Answer 28

Disgorgement (forward looking)
Restitution (backward looking)

Question 29

When considering disgorgement, what is being compared?

Answer 29

The actual situation of the wrongdoing party with that party’s situation if the
promise had been performed

Question 30

When considering restitution, what is being compared?

Answer 30

The actual situation of the injured party with that party’s situation if the transaction or even had never happened

Question 31

Is disgorgement more common for quasi-contracts or contracts?

Answer 31

Quasi-contracts

Question 32

Can a lawyer choose which remedy he wants?

Answer 32

He needs to persuade the court which is the better remedy.

Question 33

Each form of obligation carries with it a presumption that a particular form of remedy is most appropriate to that obligation. What remedy is that for contracts, torts, and quasi-contracts? If a party wants to seek another remedy, what do they need to do?

Answer 33

Contracts – enforcement of the promise (expectancy damages in contract theory)
– Torts – compensation for the injury (reliance damages in contract theory)
– Quasi-Contract – payment for the benefit received (restitution in contract theory)

A party seeking a different remedy must demonstrate a significant reason for receiving that different remedy.

Question 34

What are the bases for quasi-contracts and the measures?

Answer 34

Bases: Benefit or reliance.
Measures: Restitution (benefit), disgorgement, or reliance.

Question 35

What are the four general limitations on substitutional relief? (Damages)

Answer 35

Foreseeability
Certainty
Avoidability (mitigation)
Causation

Question 36

Two types of foreseeability exist. Which?

Answer 36

General Foreseeability: General foreseeability refers to damages that are the usual and foreseeable result of a breach of that particular type of contract. These are damages that any reasonable person would expect to occur in the event of a breach. General foreseeability does not require specific knowledge of the circumstances of the parties but is based on what is typically expected to result from a breach of that type of contract. These damages are typically recoverable in a breach of contract case.

Special Foreseeability: Special foreseeability, on the other hand, refers to damages that are not the usual or typical result of a breach but are unique to the specific contract and the special facts known to both parties at the time of contracting. To claim special foreseeability, the party seeking damages must demonstrate that, at the time of contracting, both parties had knowledge of these unique circumstances and could foresee that these particular damages might result from a breach. Special foreseeability requires a higher level of specific knowledge about the circumstances surrounding the contract.

Question 37

Damages require certainty. What does that mean?

Answer 37

The requirement of certainty is an important principle in contract law when it comes to the recoverability of damages. This principle holds that damages are generally not recoverable unless they are reasonably certain. There are two key aspects to this requirement:

Certainty of Kind of Injury: The first aspect of certainty pertains to the kind or nature of the injury suffered as a result of the breach. In order for damages to be recoverable, the injured party must demonstrate with a reasonable degree of certainty that they have suffered a recognizable and well-defined type of injury as a result of the breach. This means that the type of harm or damage must be identifiable and established.

Certainty of Amount of Injury: The second aspect of certainty relates to the amount of the injury or damages. While it may be challenging to precisely quantify the exact dollar amount of damages, the injured party is still required to provide a reasonable basis for estimating the damages with some degree of certainty. This means that damages need not be determined with absolute precision, but there should be a rational and reasonable method for calculating or estimating the amount.

Question 38

Related to the element of certainty for damages is the “new business rule”. Explain what that means.

Answer 38

Regarding the “new business rule,” which is now often considered a presumption, it historically posed a challenge when it came to determining the recoverability of damages for new or speculative businesses. The rule essentially suggested that damages for new businesses with no established track record were too uncertain to be recoverable because their future profits and losses were unpredictable.

However, over time, courts have moved away from a strict application of the new business rule and shifted toward a more flexible approach. Instead of outright rejecting claims for damages by new businesses, courts often view them with skepticism and may require a higher standard of proof or evidence to establish the certainty of both the kind and amount of damages. New businesses are now generally held to the same principles of certainty as established businesses, and the recoverability of damages may depend on the specific facts and evidence presented in each case.

Question 39

A third element required for damages is avoidability (mitigation). What can you say about it?

Answer 39

The principle of avoidability, also known as the duty to mitigate, is an essential concept in contract law that deals with the recoverability of damages. It holds that an injured party cannot recover damages if they could have reasonably avoided or mitigated those damages without incurring (1) undue expense, (2) hardship, (3) risk, or (4) humiliation. This principle is closely tied to the concept of causation in contract law.

Here’s what you need to know about the principle of avoidability:

Duty to Mitigate: When a party suffers a breach of contract, they have a legal duty to take reasonable steps to minimize or mitigate the damages resulting from that breach. This means that the injured party is expected to act in a reasonable and prudent manner to reduce the harm and losses they might incur as a result of the breach.

Reasonable Efforts: The duty to mitigate requires the injured party to make reasonable efforts to limit their losses. What is considered reasonable can vary depending on the specific circumstances of the case. Generally, the injured party should take actions that an ordinary person, in a similar situation, would consider appropriate.

Undue Expense, Hardship, or Risk: The duty to mitigate does not require the injured party to take extreme or onerous measures to avoid damages. If avoiding the damages would involve undue expense, hardship, or risk, it may not be reasonable to do so. The injured party is not expected to incur unreasonable costs or undergo extreme hardship to mitigate the damages.

Undue Humiliation: In some cases, the duty to mitigate may also consider whether avoiding the damages would cause undue humiliation to the injured party. For example, if taking certain actions to mitigate the damages would be embarrassing or humiliating, it may not be required.

Causation: The principle of avoidability is essentially about causation. It focuses on the question of who caused the injury or damages. If the injured party fails to take reasonable steps to mitigate the damages, it may be argued that they contributed to their own losses, and their recovery of damages may be limited as a result.

Question 40

Courts have identified six factors as relevant for displacing the presumed measure of damages. What does displacing mean?

Answer 40

“Displacing” means to replace or override the default or presumed measure of damages with an alternative measure. When specific conditions or factors come into play, they may displace the standard or presumed measure of damages, and a different measure may be applied based on the circumstances of the case. Essentially, it means substituting one measure of damages with another that is considered more appropriate or just in a particular situation.

Question 41

The professor did not mention causation as one of the limitation on damages. What can be said about causation?

Answer 41

It’s closely related to avoidability. It should answer the question if this wrongful act caused the injury.

Question 42

The formulas presented in class are used mostly in construction contracts. What did the professor mention? What would be the best approach to choose a formula? (3 steps)

Answer 42

1) Familiarize yourself with the facts and the law (“educate yourself on the arguments”)
2) Determine what would be the best approach for your client and which one could be claimed successfully
3) Job becomes to educate the judge (the judge might not be smart enough to understand the formula)

Question 43

If different formulas lead to the same result, which formula should be chosen?

Answer 43

The easiest one; the judge’s most likely going to understand that.

Question 44

When is the Efficient Breach Theory relevant?

Answer 44

Only when the injured party can profit after paying the damages.

Question 45

Which damages, in the eyes of economists, are the only proper measure of damages?

Answer 45

Expectancy

Question 46

What do economists say about the purpose of contract law?

Answer 46

The purpose of contract law is to facilitate economic
planning by allowing one to know for certain the effects (costs and benefits) of performance or non-performance

Question 47

According to economists, by creating […] for one’s choice, resources will gravitate to their […]

Answer 47

By creating certainty for one’s choice, resources will
gravitate to their “highest and best” use (measured solely
in terms of market values)

Question 48

Are there two types of reliance damages? If so, which? Is this generally accepted?

Answer 48

Some scholars and judges have accepted that there are two
types of reliance.

– Essential reliance (the injured party’s expenditures in
preparation for performance of the contract)
– Incidental reliance (all other reliance)

Incidental damage should have no limit according to judge, judge does not explain.

Question 49

Explain the five important buyers’ remedies under the UCC

Answer 49

UCC § 2-712 (before delivery, buyers are to recover cover
price - contract price)
 UCC § 2-713 (before delivery, absent cover, buyers are to
recover market price – contract price)
 UCC § 2-714 (after delivery and acceptance, buyers are to
recover the value of the goods as warranted – the value of
the goods as delivered)
 UCC § 2-715 (buyers can recover incidental [not
“incidental reliance”] or consequential damages)
 UCC § 2-716 (buyers can get specific performance or
replevin in proper case)

Question 50

Explain the difference between cover price and market price

Answer 50

The term “cover price” is used in UCC § 2-712. If the buyer actively goes into the market to purchase replacement goods (cover), the cover price is used.

The term “market price” is used in UCC § 2-713. If the buyer doesn’t or can’t purchase replacement goods in the market, the market price is employed. The buyer can recover the market price (without getting a substitute good).

Question 51

What is replevin? Is it a legal or equitable remedy?

Answer 51

Replevin = old common law writ, the other party has my goods but doesn’t give them back, it’s a legal
remedy not equitable, sheriff go take back my property. Proof of ownership is not required. Identified in
contract and buyer cannot make cover, can use writ of replevin.

Question 52

Explain the five important sellers’ remedies under the UCC

Answer 52

 UCC § 2-705 (sellers’right to withhold delivery)
 UCC § 2-706 (before delivery, sellers are to recover
contract price – resale price)
 UCC § 2-708(1) (before delivery, without resale, sellers
are to recover contract price – market price)
 UCC § 2-708(2) (before delivery, without resale, in a
proper case, sellers may recover lost profit)
 UCC § 2-709 (in a proper case, sellers are to recover the
agreed price)
 UCC § 2-710 (in a proper case, sellers are to recover
incidental damages—not “incidental reliance”)

Question 53

UCC § 2-709 (in a proper case, sellers are to recover the
agreed price) - give an example where this would apply

Answer 53

For something made just for the customer (e.g., a customized car)

Question 54

Are penalties in contracts enforceable?

Answer 54

One of the older rules of the common law is that
penalties are not enforceable, but agreements to
liquidate damages are.

Question 55

What are the requirements for liquidates damages to be enforceable?
What additional requirement is imposed in the UCC?

Answer 55

Be a reasonable estimate at the time the agreement is made (or not unreasonable disproportionate to a foreseeable the future loss); and

The parties could foresee that the actual injury would be difficult to measure

UCC § 2-718 requires the agreed amount also to be reasonable in light of the actual injury

Question 56

Give an example of an equitable obligation

Answer 56

Trusts are often considered equitable obligations. A trust is a legal arrangement in which one party (the trustee) holds and manages assets or property for the benefit of another party (the beneficiary). In this arrangement, the trustee has a legal obligation to manage the assets or property in the best interests of the beneficiary, and the beneficiary has an equitable interest in the trust property.

Equity, in the context of trusts, refers to principles of fairness, justice, and the rights of beneficiaries. The trustee’s duty to act in the best interests of the beneficiary is an equitable obligation. The beneficiary, in turn, has equitable rights to the trust property and can seek the intervention of a court of equity (equity court) to enforce those rights if the trustee fails to fulfill their duties.

Question 57

What are specific reliefs?

Answer 57

Specific performance or injunction

Question 58

What are the general requirements for specific performance or injunctions?
Among these requirements, where is there most room for interpretation?

Answer 58

• No adequate remedy at law
  – An obligation, legal or equitable
  – Not impracticable to enforce
  – Not unconscionable, inequitable, or against public policy

The last. The balance between cost and benefit should take place there (McKinnon v. Benedict).

Question 59

Specific performance requires “no adequate remedy at law”. In which case is there never an adequate remedy at law?

Answer 59

Ownership of land. Because every piece of land is considered unique and cannot just be replaced.

Question 60

Specific performance requires “not impracticable to enforce”. Give an example where a specific performance could not be practically enforced.

Answer 60

Opera singer. Can she be forced to perform? Is she singing badly because she is defying the court?

Question 61

Under the UCC, does the buyer have equitable remedies?

Answer 61

Under UCC § 2-716:
– Specific performance is available to the buyer if the goods are
unique or other proper circumstance (i.e., if cover is not possible).
– Replevin is available to the buyer if the goods have been identified
to the contract and buyer cannot effect cover (replevin is LEGAL remedy, although functionally the same as specific performance).

Question 62

In the Restatements, where can we find incidental and consequential damages?

Answer 62

§ 347. Measure of Damages in General

Subject to [limitations noted below] , the injured party has a right to damages based on his expectation interest as measured by

(a) the loss in the value to him of the other party’s performance caused by its failure or deficiency, plus

(b) any other loss, including incidental or consequential loss, caused by the breach, less

(c) any cost or other loss that he has avoided by not having to perform.